What Does Tenants' Improvements and Betterments Mean?
Tenants' improvements and betterments are the changes that a tenant renting a property pays to make substantial renovations and additions to a property. When a tenant makes substantial improvements and betterments, the building owner needs to clearly establish who is responsible for damages to that property or else they can run into insurance trouble.
Insuranceopedia Explains Tenants' Improvements and Betterments
When a tenant makes valuable improvements to a building, it adds to the building’s value. The building owner should either increase the limits of the property insurance policy to account for this extra value, or add a clause to the rental contract stating that the tenant is responsible for damages to improvements and betterments.
If they don’t, the building owner will run into trouble when should they be forced to make an insurance claim. For example, suppose that a building owner has a property worth $1 million and that a tenant makes $250,000 worth of additions. A fire then destroys the entire building. When the insurance adjuster inspects the claim, they will value the property at $1.25 million. Many property insurance companies will charge the owner a penalty for being underinsured in this case.